Should you stop SIPs during market corrections? Here’s what investors need to know – Delhi News Daily

Systematic Investment Plans (SIPs) in mutual funds are widely promoted as a simple and disciplined way to build long-term wealth. However, when markets turn volatile or portfolios show short-term losses, many investors begin to question whether SIPs would work in all conditions. Common doubts include whether SIPs should be stopped during market corrections, whether reducing the investment amount is better than exiting altogether, and how investors can review their SIPs without making emotionally driven decisions. Such concerns tend to surface most during uncertain market phases.

Do SIPs always work?

SIPs do not guarantee profits, particularly in the short term. Their key strength lies in long-term investing, where regular contributions help smooth out market volatility through cost averaging. SIPs tend to work best when investors remain invested across complete market cycles. That said, if a fund consistently underperforms its benchmark or peers over an extended period, returns can still be disappointing despite continued SIP investments.

In an interview with ETMutualFunds, Pallav Agarwal, Certified Financial Planner, Bhava Services LLP, said that investing through SIPs mitigates risks and inculcates investing discipline in the investors; they are not foolproof.

Agarwal added that investors may feel disappointed during prolonged market corrections or consolidation phases, such as the current scenario, particularly when schemes—especially sectoral or thematic funds—deliver poor performance, or when investors have a shorter-than-ideal investment horizon.

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Another expert, Sagar Shinde, VP Research at Fisdom, told ETMutualFunds that SIPs are designed for long-term investing. They can appear disappointing in certain situations, like over short periods, especially during market corrections or volatility, SIPs may show temporary negative returns.

“At the same time, these phases activate the benefit of rupee cost averaging, as lower market levels allow investors to accumulate more units at a reduced average cost,” he added.

He also noted that SIPs may appear less effective after sharp market corrections, when a well-timed lump-sum investment could potentially generate higher returns. However, the key challenge is that consistently identifying market bottoms or timing entries perfectly is extremely difficult. SIPs recognise this uncertainty and provide a disciplined approach to investing without relying on market timing, making them a more reliable option for most investors across market cycles.

Should investors stop SIPs during market volatility?

Market corrections and volatility are uncomfortable, but are not usually a reason to stop SIPs. In fact, SIPs allow investors to buy more units when markets fall, which can improve long-term returns.

Shinde said that stopping SIPs during volatility is generally not advisable because market corrections are when SIPs derive the maximum benefit through rupee cost averaging, and exiting during downturns often results in locking in losses and missing out on the eventual recovery.

It may make sense to stop or pause an SIP only for non-market reasons—such as when the investment goal is approaching, the planned tenure is complete, or there is a genuine change in income or financial priorities and market noise alone should rarely be the trigger, he further said.

Stopping SIPs during downturns often leads to missed opportunities, especially if markets recover faster than expected. That said, stopping an SIP may make sense if personal circumstances change, such as loss of income, or if the fund itself no longer fits the investor’s goals or risk profile.

Agarwal said that there might be reasons to stop SIPs, but market volatility should not be the reason. In fact, investors should increase the SIP amount during corrections if they can afford to, and SIPs should be stopped when there is a loss or reduction of income or savings, or when a scheme is consistently performing poorly.

Is reducing SIP amounts a better option?

Completely stopping SIPs often makes it harder to restart, especially when market sentiment improves. So, reducing the SIP amount is a better option, or should investors look for other factors?

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Agarwal said that if an investor has low risk tolerance, reducing SIPs might be a better option than stopping them as this will help in continued investment discipline and when the market rises back, investors may experience good returns which will educate them about the benefits of market volatility.

For investors facing temporary financial stress, reducing SIP amounts can be a better option than stopping them completely. This helps maintain investment discipline while easing cash flow pressure.

Agreeing to this, Shinde firmly said that yes, reducing SIP amounts can be a more balanced approach than stopping them altogether as if cash flows are temporarily under pressure or volatility is causing discomfort, scaling down allows investors to stay invested while easing financial strain and this helps preserve investment discipline and ensures continued participation in the market cycle, even if at a lower commitment level.

Reviewing portfolio and not reacting to short-term losses

Comparing performance over three to five years, rather than a few months, helps avoid emotional decisions.

Shinde said that SIPs should be reviewed against long-term goals, asset allocation, and fund consistency rather than short-term performance and investors should focus on whether the original objective remains intact and whether the fund continues to follow its stated strategy.

Periodic reviews—once or twice a year—are usually sufficient and understanding that interim losses are a normal part of equity investing helps investors avoid emotional decisions and stay aligned with long-term wealth creation

Sharing a similar belief that the most effective tool to avoid reacting emotionally is to focus on the long-term goals for which the SIPs were done, Agarwal said that investors may review their SIPs 2-3 times in a year, where they can monitor the fund performance and take corrective actions if needed.

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SIPs are a powerful wealth-building tool when used with patience and discipline. While they may test investor confidence during volatile phases, reacting emotionally by stopping or frequently changing SIPs can hurt long-term outcomes. For most investors, staying invested, reviewing funds calmly, and making adjustments only when fundamentals change is the smarter approach.

One should always invest based on one’s risk appetite, investment horizon, and goals.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)